Hot Topic – Whatever happened to the MIP?
10 year qualifying policies – fondly known as MIPs – Maximum Investment Plans – I always had a soft spot for them as a useful savings plans back in the late 80’s. It seems that more recently others did too; using them as tax free shelters once they’d used up pension and ISA allowances as there was no upper limit on how much could be invested and the fund was free of higher and additional rates of tax, just suffering a deemed basic rate in the life fund itself. So, as widely anticipated, new legislation put a stop to it.
Since the 6 April 2013 the maximum premium an individual can pay into qualifying policies (to remain fully qualifying) is £3,600 a year.
Rules have been in place for policies taken out from 21 March last year to 5th April this year – transitional rules that say that any premiums paid on policies issued during this time will count towards the new cap. (Qualifying policies in force before 21 March 2012 which are not changed after 20 March 2012 are known as ‘protected policies’ and are not affected.
So if all the premiums on the new policy are more than £3,600 a year, the treatment for qualifying policies will be restricted; to the gains applied to premiums paid up to 5th April this year and to the first £3,600 paid from 6th April.
Premiums paid to qualifying policies under the new rules that are in excess of the premium cap of £3,600 will be subject to the chargeable event rules and taxed as if it were a non-qualifying policy meaning any gains will be taxable.
For most investors into MIPs a restriction of £300 per month is probably not going to make much difference – a lot of policyholders would have been paying much less than this – and they can carry on as if nothing had happened.
The problem now could be actually finding a provider who is still offering these products as many of the old favourites have now pulled out of the market. And for any still in? They are going to have fun dealing with this…
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